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spk00: Ladies and gentlemen, thank you for standing by for NIO Incorporated's fourth quarter and full year 2023 earnings conference call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Rui Chen, Head of Investor Relations of the company. Please go ahead, Rui.
spk13: Good morning and good evening, everyone. Welcome to NIO's fourth quarter and full year 2023 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted at the company's IR website. On today's call, we have Mr. William Lee, Founder, Chairman of the Board and CEO, Mr. Steven Thun, CFO, and Ms. Stanley Chu, Senior VP of Finance. Before we continue, please be kindly reminded that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the view expressed today. Further information regarding risk and uncertainties is included in certain filings of the company with the US Securities and Exchange Commission, the Stock Exchange of Hong Kong Limited, and the Singapore Exchange Securities Trading Limited. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that NIO's earnings press release and this conference call include discussion of the unaudited gap financial information as well as unaudited non-gap financial measures. Please refer to NIO's press release which contains a reconciliation of the unaudited non-gap measures to comparable gap measures. With that, I will now turn the call over to our CEO, Mr. William Li. William, please go ahead.
spk04: Hello, everyone. Thank you for joining NIO's 2023 Q4 and the four-year earnings call. In Q4 of 2023, NIO delivered a total of 50,045 premium smart EVs, up 25% year-over-year. In 2023, NIO's cumulative delivery reached 160,038 units, representing a growth of 30.7% from 2022. In January and February of 2024, due to the seasonality of our industry and the Chinese New Year, NIO delivered 18,187 vehicles. On March 7th, NIO will start to deliver the 2024 models featuring enhanced performance and experience. With that, Niel's sales will gradually bounce back, and the total delivery in Q1 is expected to be between 31,000 to 33,000 units. In terms of Niel's financial performance, with continuous improvements on the bond cost, the vehicle cost margin increased to 11.9% in Q4. Now, I would like to share with you the recent highlights of our products and the operations. On December 23rd, NIO Day 2023 was held in Xi'an Shanxi province, where the smart electric executive flagship NIO 89 was unveiled. ET9 embodies near the full stack capabilities and the global leading technology. Bettering core technologies, such as the in-house development AD chip NX9031, all domain 900 volt architecture, sky-right chassis system, and the flagship safety and security, ET9 defines the technology standard for the next generation premium smart EVs. The delivery will start in Q1 2025. In the meantime, NIO will soon start to deliver its 2024 models with the configuration and the performance upgrades, including the brand new center computing cluster, ADAN, which brings the computing power to a new level. Enabled by the industry highest computing power, NIO's software release has become faster making our products more competitive. With respect to NEO Assisted and Intelligent Driving, or NAD, NEO's collective intelligence capability has seen rapid growth, with the total validated urban mileage increasing 100-fold in five months. As of the end of January, Navigate on Pilot Plus were validated and made available more than 1 million kilometers of roads in China, including 650,000 kilometers of complicated urban driving scenarios in 606 cities. In Q2, the NOP Plus for urban roads is expected to be released to all NT2 users. which will make this OTA update the largest public release of its kind in China. Through computing sharing across different domains on the central computing cluster, NomiGPT, or multi-modal large vision model, will be released soon, making the cockpit smarter and more secure. In addition, Nielsen MathMarket brand will make its debut in Q2, The fourth product will be launched in Q3 with mass delivery to start in Q4. As for the sales and service network, so far, NIO has 148 NIO houses and 352 NIO spaces, as well as 314 service centers and 62 delivery centers. About the charging and the swapping network, to date, NIO has 2,419 power swap stations worldwide, providing over 39.5 million swaps cumulatively. It also has installed over 10,000 power chargers and 11,600 destination chargers. During the Chinese New Year, On the business day, NIO completed 19,199 swaps. One of the stations on the highway provided 195 swaps. Battery swap has become the most reliable solution for NIO users. Following the battery swap cooperation with Chang'an and the GD, another two strategic cooperation agreements were signed. with JEC and Cherry in January. NIO will roll out comprehensive and in-depth cooperation on battery swap with these partners. Moreover, NIO has partnered with multiple energy companies, such as Anhui Energy Group and the China Southern Power Grid, to jointly build swap stations. The value of battery swap has been appreciated by more people. making a holistic, chargeable, swappable, and upgradable solution a well-recognized core advantage of NIO. In 2024, NIO plans to build 1,000 new battery swap stations and 20,000 chargers, bringing the total to over 3,310 swap stations and 41,000 chargers by the end of 2024. Regarding the capital market, in December, Niel received $2.2 billion U.S. dollar of strategic investment from Abu Dhabi investor Simon Houdib. The investment has further strengthened Niel's balance sheet, laying a solid foundation for Niel's investment into the next generation core technologies and products. Shouldering the core, shouldering the core corporate social responsibility and supporting global sustainable development, NIO always stayed true to its foundation vision of blue sky coming. In general, NIO was selected by corporate NICE into the 2024 Global 100 Most Sustainable Companies, making to the list for the second time in a row. NIO was placed 15th among more than 6,000 companies worldwide, up 29 sports from last year. As competition intensified in 2024, we see both challenges and opportunities, with faster deployment of charging and swapping facilities and a change in consumer behavior, the premium BEV segment to which NIO Brands belongs. will soon arrive at an inflection point of growth. In the second half, a new brand for the mass market will also become our growth level. In 2024, we will continue to focus on the corporate top priority, level up system capabilities, strengthen cost of mindset and the cost of management, so as to bring our A game to the next phase of competition. As always, thank you for your support. With that, I will now turn the call over to Stephen Kuo for his financial details. Over to you, Stephen.
spk14: Thank you, William. I will now go over our key financial results for the first quarter of 2023. And to be mindful of the length of this call, I will reference to RMB only in my discussion today. I encourage listeners to refer to our earliest press release which is posted online for additional details. Let me start with revenue. For the first quarter of 2023, total revenues reached 17.1 billion RMB, up 6.5 year over year, and down 10.3 percent quarter of quarter. Ninety percent of revenue comes from vehicle sales in Q4, which was 15.4 billion RMB representing an increase of 4.6 percent year-over-year and a decrease of 11.3 percent quarter-of-a-quarter. The improvement year-over-year was driven by growing delivery volume, despite the impact of lower average selling price resulted from product mix changes. The decrease quarter-of-a-quarter was mainly attributed to a decrease of 9.3 percent in deliverable volume. Moving to other sales, other sales reached 1.7 billion RMB, growing 27.6% year-over-year and 0.4% quarter-to-quarter. The year-over-year increase was mainly due to increased sales in accessories and the provision of power solutions, which both grew with our user base. have a look at the gross margin. Overall gross margin was 7.5 percent compared with 3.9 in the same period of last year and 8.0 percent in the last quarter. The increase year-over-year was mainly attributed to the increased vehicle margin. The slight decrease quarter-of-quarter was due to the decrease in margin from provision of power solutions as a result of expanding power network. even though vehicle margin was growing. A closer look at vehicle margin, which was up to 11.9% in this quarter, compared with 6.8% in Q4 2022 and 11.0% in Q3 2023. The year-over-year increase was mainly due to the decreased material cost per unit in Q4 2023 and lower base in Q4 2022, which resulted from inventory provisions, accelerated depreciation on production facilities, and the losses on purchase commitments for the previous generation of ES8, ES6, and EC6 recorded. Let me move on to the operating expenses. Our expenses were 4.0 billion RMB, remained stable year over year, and increased 30.7 percent quarter-of-quarter. The increase was mainly driven by incremental design and development costs for new products and technologies, and higher personnel costs in R&D functions. SG&A expenses were 4.0 billion R&B, increased 12.6 percent year-over-year, and 10.1 percent quarter-of-quarter. which was mainly related to higher personnel costs in sales functions and increased sales and marketing activities. Let's move further to the bottom line. Last for operations was 6.6 billion RMB, which is a decrease of 1.6% year-over-year and an increase of 36.8% quarter-of-a-quarter interest. and investment income was 1.4 billion RMB increased 288.7 percent year-over-year and 375 percent quarter-of-quarter. The increase was primarily attributed to the recycling of unrealized gain from other comprehensive income to investment income of 977.3 million RMB for the available for sale debt related to an upstream industry investment. Last was 5.4 billion RMB, representing a decrease of 7.2% year-over-year, an increase of 17.8% quarter-to-quarter. Last but not least, our balance sheet gets strengthened with 57.3 billion RMB in cash, and cash equivalents, restricted cash, short-term investment, and long-term tax deposits as of December 31, 2023. For more information and details of our on-audit 2023 full-year financial results, please refer to our earlier press release. Now, this concludes our prepared remarks. I will now turn the call over to the operator to facilitate our Q&A session.
spk00: Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, please limit yourself to two questions. And if you have additional questions, you can re-enter the queue. Your first question comes from Tim Hissier from Morgan Stanley. Please go ahead.
spk03: Hi, Manchin. Thanks for taking my questions. I have two questions. The first one is about our upcoming, the mass market brands, Alps. So is NEO still targeting to launch and deliver the first model on the Alps in late the quarter? And separately, as it's just lasting two quarters away, could you share more information about the channel strategy, target numbers of stores, store types, and scale of charging network, etc.? ? So any additional callers about how to be, how do you appreciate? So that's my first question.
spk04: Thank you, Tim. 我们目前的计划就是讲到了我们在Q2会发布这个Apples, 就是我们的MathMarket这个brand的这个brand, 然后在三季度的话呢, We will start to release the first product. Then the market will start to deliver large quantities. In fact, our first car was in Q4 last year. This VB car, which is a four-wheeled car, has already been launched. We are very satisfied with this product. So from the perspective of opening the store, it must be a separate sales network. But in terms of after-sales, will use a part of NIO's existing SOHO system. In terms of the power exchange network, our shared power exchange network, as you can see, we and several car companies, and there will be more car companies in the future, will share this power exchange network with us. ARP will use this shared power exchange network. But this shared power exchange network, NIO's car can also use it. But a part of the power exchange stations, NIO is exclusive.
spk06: Thank you for the question. As I've mentioned in the prepared remark, in the second quarter of this year, we're going to unveil our second brand, the brand for the mass market. And in the third quarter, we will launch the very first product of this new brand, and the mass release and delivery will be starting from the fourth quarter of this year. Actually, the verification build, the baby build of this car already rolled off the line in Q4 last year, and we were pretty satisfied with the conditions of that build. In terms of the sales and the service network of this new brand, for the point of sales, it will have its separated and independent sales network. But in terms of the after-sales services and the touchpoints, we do can leverage the existing service resources of the new brand. In terms of the PowerSwap network, we've previously mentioned that for the PowerSwap network, we have a private network and a public network, similar to the cloud infrastructure and the cloud service. For the private network, basically it's the PowerSwap stations and the facilities that's designated and exclusive to the new brand. network, where we will share the power swapping resources with not only Alps, our second brand, as well as other car companies. As you also know that we have already signed the agreements with several car companies, and more will join the public service facility as well.
spk04: Yes, the fourth generation of Alps will be able to integrate these different brands, including NIO and Alps.
spk06: Our fourth-generation power swap station will have the compatibility for both new products as well as Alps products, and we will start to build the fourth-generation swap stations from April this year. Previously, we've mentioned that in 2024, we are going to install another 1,000 swap stations, and most of the stations will be first-generation stations for the public network.
spk04: Thank you, Tim.
spk03: Thank you. Thank you very much for sharing all the details. So my second question is now on the margin target, because we recall that back to the quarter results, I think the management team mentioned that the vehicle gross profit margin for 2024, i.e. this year, would be around 15% to 18%. And there could be additional like 0.5% margin uptake contributed by in-house production. So based on current market environment and compact landscape, do you still maintain the same target this year or look for any potential changes to the margin target? That's my second question. Thank you.
spk12: Hi, Tim. About the margin, yes, for the whole year, I think we keep this 15% to 18% target. But by quarter, I think there will be some change. As you may know, we will upgrade all our NT2 products to 2024 version in March. And during the transition of old and new products, more promotions are offered for the old models, leading to the decrease of gross profit margin in Q1. But starting from Q2, along with the volume ramp up of our 2024 version, and also the further cost optimization activities, as you mentioned, we believe our vehicle margin can come back to an upward trend. And so starting from Q2, we are confident that 15% to 18% vehicle margin can be achieved for new brands. And from a long run, our target, our margin target for Q2 Your brand will also be over 20%. Thank you, Tim.
spk03: Great. Thank you very much.
spk00: Thank you. Your next question comes from Bin Wang from Deutsche Bank. Please go ahead.
spk02: Thank you. My first question is about the 2024 volume target. Some media report you target 200,000 units for the full year 2024, which means 25% goals. Can you confirm whether this is your target? That's the number one question. Number two is about the second product from the new brand, mass market brand. In a recent interview, we actually mentioned they made a full-size SUV bigger than the first one with the second product followed by MPV. Can I confirm this is your plan for the new brand in the next second and third product? Thank you.
spk04: Thank you, Mr. Wang. This year, of course, the market competition will be more intense. Our product, from the product perspective, our 2024 model, after the upgrade, from the performance perspective, especially the intelligent computing power, we believe it will be the world's leading model. This year, we will focus on software to deliver these functions, namely, to fully utilize the hardware capabilities. Just like I mentioned earlier, we will be pushing our second-generation users to the second-generation users in the second quarter. Then we will also rely on the computing power in our car, including the large models of multi-mode interaction, such as Nomi GPT. I believe it will greatly increase the competitiveness of our current products. From the perspective of this channel, We have nearly 500 new houses and new spaces. We will continue to make some channels this year. After our team increased in the second half of last year, we actually saw their performance, because many of them have started to mature. Their sales skills and understanding of products have improved. So if we look at this year's Q2, this year's February, In fact, our performance should be in this pure electric or in the new version of the car. If we look at it horizontally, we actually compare this with Q1 and January. We are actually relatively good. This also proves the value of our current sales ability. Combine these, including our change station, our deployment of today's change station, This is in addition to being able to share with ARBES and NEO. Our deployment of the power station this year will be able to start from a sales perspective. This starts from the perspective of increasing sales. Because we already have more than 2,000 stations, our network layout has basically been formed. So combined with these points, we are very confident in this year's sales. Of course, our Q1 sales gave this guide 31,000 to 33,000. We believe that after March, as the weather gets warmer, the market will get better and better. This year, we are confident that we can return to 20,000 units per month. We hope to reach this level as soon as possible. As for our second brand, let me translate it first.
spk06: Thank you for the question. Definitely for this year, the competition is going to continue to be intense. But as we've also mentioned that we will be having our project for the 2024 models with enhanced performance, especially much better computing power. The computing power will continue to beat the global market. So this will help us to improve the overall competitiveness of our existing projects. This year, we will focus on accelerating the software release so that we can release more new on the chip and computing power. And also, in the second quarter, we are going to release our NOP Plus for urban roads to all the NT2 users. By doing this public release, we can also enhance the competitiveness of the product. Plus, we also have other new features like large language models, large vision models, and the GPP and et cetera. In terms of our sales channels and the network, so far we have around 500 new houses and new spaces. And we will continue to enlarge the reach of our sales and service network to the lower tier cities. And in the meantime, from last year, we have enlarged our sales force. As the team is getting more matured and skillful with the sales and getting better understanding of our products, we also see this sales force start to kick in. Especially in our delivery results for the February, inside of the BEV segment or the new energy vehicle market, our delivery results in February was actually pretty good, especially in comparison to our results in January. This has also reflected the effectiveness and the efficiency of our south force and also south channel enlargement. And thirdly, we will also continue to deploy our power swapping network. As I've mentioned, we will deploy both public network and private networks for NEO and for ALPS. And for our PowerSwap network this year, we will mainly serve the purpose of boosting sales volume, because we already have more than 2,000 swap stations. So we basically have established the initial network for the PowerSwap services, and now we will focus more on boosting sales via installing these stations. So overall speaking, we are confident with our sales and the delivery results this year. As in our guidance, in the first quarter of this year, we are going to deliver around 31,000 to 33,000 units. In March, as weather gets better and the market gets more dynamic and vibrant, we are also confident that our source volume will increase. For the mid-term, we hope that our source volume can still be back to around 20,000 units per month. And we hope that this can happen sooner.
spk04: About our massive market brand, I think there are some media reports. I also did some simple communication with the media. Our first car, because we are already doing all kinds of tests, there are indeed some foldable photos that will be taken, some test photos. Our first car, Yes, first of all, let's talk about our second brand, Master Market. It is definitely focused on the family market. We will launch very competitive models for different sizes of families. We believe that because we are a little later than other family cars, we believe that the research on the needs of users and various things will be more in-depth. We believe that our products are very competitive. As for our first model, it is the most popular model in terms of power generation, Model Y. It is indeed a competitive product, but it can be replaced. From the current point of view, our cost and performance are very competitive. We believe that our cost can be about 10% cheaper than Tesla. It also gives us a good space for our pricing. 我们第二款车是针对大家庭的一款SUV。 这款车其实研发进展也非常的顺利。 我们已经进入到了开模的阶段。 这个也是比较顺利的。 我们明年就会能够推向市场。 但第三款车,我们肯定已经在开发的过程中了。 今天还太早去说我们合适的时候跟大家交流。
spk06: And for your second question about our mass market brand, some media has already captured some of our publicly tested vehicles on the roads and also reported some sneak peeks of our very first product. For our second brand, as we've previously introduced, its overall positioning is to target at the family-oriented users, basically families of different sizes. Or for family of different sizes, we are going to launch different sizes of vehicles, but all with strong product competitiveness. As we started relatively late in the family-oriented segment, we do can leverage such opportunities to better look into the real demands of the target users and launch competitive products accordingly. The first product of our mass market brand will have head-on competition with the most popular model of Tesla, that is Model Y, but our car will support battery swap. So in terms of the cost and performance, we believe that this model will be highly competitive. In terms of the BOM cost, it will be roughly 10% lower than that of Model Y, which also gives us better flexibility for the product pricing. And the second model of our mass market brand will be a SUV model for the large family, The R&D is in good progress. We have already kicked off the tooling for the second model, and this car will be launched in 2025. And the third model is also on the way. We have already started the product definition and R&D, but it's too early to share the information, and we will disclose more information when it's appropriate.
spk04: Thank you, Ongbin.
spk02: Thank you very much.
spk00: Thank you. Your next question comes from Yuqiang Ding from HSBC. Please go ahead.
spk01: Thanks, Tim. Yuqiang here. I got two questions. The first is we want to understand what's management priority or strategy between pricing and volume. We noticed that the company acted quite refrained in pricing among universal price action from peers. Has that been, we have been seeing the ticker price rather stable. So does that read as more profitability as a priority over volume for this year? Or it's a rope-and-dope tactic before our new mass market brand coming to the market? That's the first one.
spk04: Yeah. Thank you, Yixuan. Because NIO has been selling two brands since the second half of this year. But from a strategic point of view, You know the brand of our woman who way she should be eating five can be a little too. No, I'm not going to that. We are going to push him. Uh, woman can you don't have to focus that premium brand. Now, have the Molly. Take a way to sound. So you know, we can use that to show Molly to her. That's a woman. That's not going to come in. I want my way. Good job. She came to the Molly. Hey, one boy. This is not our focus. But from the perspective of the second brand, it is indeed a family market. So this market competition will definitely be more intense. Then our second brand can leverage our investment in smart and electric development and some basic facilities. Of course, it must be more advantageous than the beginning. Our second brand will prioritize quantity. In the beginning, we certainly did not pursue profit margin. We must pursue quantity. The priority of quantity must be higher. In general, these two brands will have a different strategy.
spk06: Thank you for the question. Starting the second half of this year, Neo Group will sell two brands simultaneously. So strategy-wise, we have also differentiated for these two brands. For the Neo brand, for now, we will not sell any products that will be cheaper than the existing ET5s. Even for the products in our pipeline, they will be targeting at the premium segment, which means that our products for the new brand will be more growth margin oriented. We will be carrying more on the gross profit of our product than the volume. So we will not cut the prices or enter the price war. We will not realize higher volume at the cost of our compromised margin or gross profit. And for the second brand, the brand for the mass market, it is targeted at the mass market and also for the family-oriented users, where the competition is also more intense. But luckily, it can leverage the existing electrification and smart technologies and infrastructures already developed by NIO. So it has certain advantages than starting a completely new brand from the ground up. For this second brand, we will be focusing more on the volume, So the volume is prioritized over the gross margin of the products. That's the overall strategy for these two brands. We believe that with this combined brand portfolio, it will also help us to realize a healthier, long-term, sustainable development and operations. Thank you.
spk01: Got it. And my second question is, the recent two sessions talked about supporting SOEs to move more aggressively on the EV without constraint on the profitability. So it looks like another pressure and making the industry harder and harder to consolidate. So thanks for the strong color on the new mass market brand and value proposition. Guess this is us changing the way of asking questions. Other than the strong product, are we aggressive enough on the pricing? You talked about the volume priority, but if the pressure is going to be overhanging for longer, are we ready for being aggressive on the pricing for longer?
spk04: In China, we will face competition from various companies. We will face competition from Tesla. We will face competition from Like the competition of the new companies, there will also be the competition of private companies, the competition of joint-stock companies, but there will also be some competition of state-owned companies. China is a very open car market. This competition is definitely good for users. For companies, of course, it will be a little bit more difficult, but in the end, I believe that the final winner will definitely be more comprehensive, more from the experience of users, such companies. We have confidence in the long-term competition we have won. Of course, in addition to competition, we think cooperation is also very important. For example, our first partner in the exchange of electricity in Chang'an is Chang'an. We have cooperated with Jili, Qiwei, and Jianghuai. We also cooperated with China's Shihua in the exchange of electricity station. We have cooperated with China Petroleum, we have cooperated with Nangwang in the field of power and energy. So, in fact, from NIO's point of view, we are also a company that is very good at cooperation. So, in terms of overall, I think competition will definitely exist forever. But on the other hand, we will also, from a reasonable point of view of our industry, from a business reasonable point of view, to develop external cooperation.
spk06: It's true that doing business in China, it's inevitable that we will face competitions coming from all types of car companies, including companies like Tesla, many startups from China, private companies, well-established ones in China, and also joint ventures and state-owned enterprises. Overall speaking, China's automotive market is a highly open market, and such competition can actually benefit or bring benefits to the end users. However, it can be more difficult and challenging for car companies. But we believe that by the end of the day, those companies with good overall capabilities and competence as well as those companies who care about the experience of the end users will survive from the fierce competition. And we are confident that we will withstand such competition from all the competitors. But in the meantime, we also see corporations out of the competition. For example, we have announced PowerSwap cooperation with many car companies. China Automobile is the first car company to partner with NIO in PowerSwap. Later, we also collaborated with EV Holding, JEC Group, and Cherry on the battery swap. We also have partnerships with energy companies like Senopac and PetroChina for the construction of PowerSwap stations, as well as with China Southern Power Grid on the energy storage, as well as PowerSwap stations. So in general, NIO is pretty good at partnering up with the peers in the industry. Since the competition is inevitable, we would like to look at how we can navigate through the intense competition from the reasonability of the business perspective. Got it.
spk00: Thank you.
spk04: Thank you.
spk00: Thank you. Your next question comes from Ming Sun Lee from Bank of America. Please go ahead.
spk09: Hi, thank you, William, and the Adrian team. So I also have two questions. So first question is regarding the overseas market. Do you expect NIO to enter the new countries this year? Will you cooperate with more local distributors in other overseas markets, or you will maintain the direct sales business model? Also, do you have any overseas sales target for this year? Thank you. That's my first question.
spk04: In five European countries, we will manage the market of these five countries. We will continue to do business. We will also enter some new countries this year, such as the UAE. Because the investment institutions of Abu Dhabi also invest in us. Here we will have some market, some market in terms of sales. These are some of the plans to enter. In other countries, from today, we will look at So from now on, for us, there will be some more flexible strategies. There are two aspects of this change. One is because we will have new brands and new products in the public market. We will have a new brand with a cheaper price next year, such as 1.9 million RMB. That means that our product will have more coverage in the entire market. It will be bigger. China China China China China Taiwan Taiwan Taiwan Taiwan
spk06: Thank you for the question. Regarding the global market or international markets, at the moment, we will still primarily focus on the Chinese market as it is the largest and also the most competitive market for the automotive industry. But in the meantime, we will not stop our exploration into the international market. So far, we have already entered five European countries. and we will keep refining our operations and management in these five European countries. And this year, we are also planning to enter into several new countries. For example, UAE, as we are invested by the Abu Dhabi's strategic investors, so we are also preparing for the market entry and the sales and the service in that market. For the other countries, we are more awaiting and to see the development of the conditions And strategic-wise, we will also become more flexible because there are two major changes. The first change is that we will soon have our mass market brand. And the next year, we are going to announce our third brand. The price will be below 200,000 RMB, which means that with all three brands combined, we will be able to cover larger markets with more segments. Because NIO as a brand primarily focuses on the premium segments, basically China, US, and Europe, These three continents contribute 90% of the sales of the premium segment. But for our second and third brands, as they are more affordable, they will be standing a bigger chance of tapping into a more diversified market and in more regions. So our global market entry will also take these three brands into consideration. And the second change is regarding our strategy entering into each market. At the moment, in China and in five European countries, we adopt the direct selling model. And in China, we will continue to have the direct sales with direct touch points with users. But for the other markets outside of China, we need to respect the local conditions and also the special characteristics of each market. In that case, we will keep our strategy very flexible and very open. We will look at which way will be bringing us quicker return on investment. We don't exclude any possibilities of cooperating with local partners for the market entries. So in general, we will have a very flexible and a very open strategy towards markets outside of China.
spk09: Thank you, William. My second question is regarding the battery technology. So recently, some auto brands started to launch 5C 800-volt charging battery and the system. So when do we expect that the NIO brand and also probably your second brand will start to provide this spec? And after you have the fast charging battery, will you switch to expand more charging station instead of battery substation in 2025? Think with it.
spk04: Yeah. Yeah. Yeah. Yeah. Our charging business is basically a break-even. So in general, we will continue to do this layout. Our super fast charging system of 644 kilowatts will also start to install recently. So in this regard, there is no doubt that we will follow the technical trend of this industry. Of course, no matter how fast you are, it is definitely better to change power. I see some media say that this is equivalent to 20C. 我当然这个是一个比喻了 那这个肯定从一个体验的角度来讲 换电肯定是最好的体验 所以我们一直叫可充可换可升级 那我们也会强调可升级 这个其实对用户利益是更好的 但从一个方向的角度来讲呢 我们不光是关注这个电池的能量密度 就像我们这个近期要交付了150多电 那我们关注这个快充 对吧 就是这个5C 我们其实我们的 This ET9 will be equipped with this 5C supercharged battery. More importantly, we will pay more attention to battery life. We think this is actually really important for users. If we look at the current status of the industry, the quality assurance provided is 8 years, more than 100,000 kilometers, and then 70% of such a quality standard, SOH is 70%. If we look at it a little bit longer, because this car is a product of 15 years, then this must not be enough, because most cars today are not up to this age, not up to 8 years. In fact, if we look at it a little further, then this is actually a problem right away. So we think that long life, especially daily life, is the most important thing for batteries. We have solved the safety problem of batteries in the past few years. uh uh uh China China China China Thank you for the question. In terms of the battery technologies, actually, NIO has been having this longstanding strategy of studying the ultra-fast charging as well as ultra-quick battery swapping.
spk06: In terms of charging, actually, NIO is the most active grant in terms of deploying public chargers for the users in China. And as of now, 80% of our electricities were charged for the non-NIO users than for the NIO users. For the NIO powers charging business by itself, it is already breaking even. And we will continue to deploy the chargers for the users. Very soon, we are going to install and launch our 640 kilowatt power chargers. So definitely, we will follow the latest technologies in the charging industry. In the meantime, we also need to emphasize on how fast the power swap can be, because no matter how quick you are on the charging rate, it can never outrun the power swap. Some media has used the analogy where power swap is as fast as charging at 20C, in comparison to 5C on a common charger. Not to mention that battery swaps also have the best experience for the users. And a new holistic solution, in addition to chargeable and swappable, we also have upgradable, which is also very important, especially to serve the interests of our users. Very soon, we are going to have our 150 kilowatt hour battery. We also have a 5C charging rate that will become available on our first model from the third generation products, ET9. But in addition to looking at the battery capacity and the charging rate, what really matters is the lifetime of the battery. For that, we think that it's very important, because at the moment, the industry average warranty duration is around eight years or 100,000 kilometers something, or when the battery hits 70% state of health. But if you look at the vehicle, it has a life cycle of around 15 years. For most of the electric vehicles running on the street, they haven't really hit the end of life of their batteries yet. But as the car companies, we really need to consider about the 15-year lifecycle of your products, including cars, including batteries. That's why the calendar lifetime of the batteries becomes more important for the car companies. Over the past several years, we have tackled the difficulties on the battery safety, efficiency of charging, and also the accessibilities of the charging and swapping facilities. And from this year, we will focus on the long-life batteries, We have already done some research and studies on the technologies, and recently we are going to share more information with the industry. What we believe that with a longer battery life, especially longer calendar life, it will help not only the battery electric vehicles, but also PHEVs and the EREVs, or the new energy vehicles in general. Because after eight years, when the battery hits its end of warranty life, you cannot ask the user to pay another 100,000 RMB to upgrade the battery or to buy a new battery. Even for a smaller battery pack of only 40 kilowatt hour capacity, you cannot ask them to pay 80 or 90,000 RMB for a brand new battery. So as a car company, we need to look after both battery and cars across or throughout its life cycle. In that case, we need to provide the ultimate battery solution to the industry.
spk09: Thank you, William.
spk06: Thank you, Miriam.
spk00: Thank you. Your next question comes from Paul Gong from UBS. Please go ahead.
spk08: Hi. Thanks for taking my question. My first question is regarding your R&D budget for 2024. How much do you plan to spend into R&D for this year? And if you can, would you please give a rough breakdown? how much of this would go to the new models, and how much go to the outputs, and how much to the third brand, and how much go to the autonomous driving software, and some key components, et cetera. So regarding the R&D spending plan for 2024.
spk12: Hi, Paul. This is Danny. Regarding your question about the R&D expense expectation for 2024, Generally, the scale of R&D expense will be consistent with 2023. And on average, the quarterly spending for R&D will also be around RMB 3 billion. Yeah, that's the general guidance for R&D. 在划分方面的话,我们当然主要的还是我们一些基础的研发。
spk04: Smart Electric can be used. For vehicles, NIO, APOS, and FY can also be used. But the difference will be bigger. Last year, on September 21st, we communicated with 12 power stations on NIO. We invested in 12 areas. Generally speaking, 70% of our power stations
spk06: In terms of how to allocate the R&D expenses this year, we will mostly allocate our resources on the fundamental technologies as well as the technologies that can be shared across all three brands. We have mainly focused on the smart and electric technologies, which can already be shared across New Alps and also Firefly, which is our third brand. And last year in September, we have announced our 12 full-stack technologies at the New Inn Tech Day. And basically, our R&D investments will be dedicated into these 12 main areas. And in terms of the personnel structure, around 70% of our R&D people are focusing on the smart technologies where relevant areas.
spk08: Sure. My second question is regarding the cost of Alps. Just now, I think you mentioned that the cost is going to be about 10% lower than Tesla. Can we give a little bit more color, given this is actually a pretty impressive number when you consider Tesla is building almost 1 million cars in China a year. of which 700,000 is already like Model Y. What volume scale are you based on to assume the ALPS costs? And what are the key advantages that you have adopted for this cost advantage compared to Tesla?
spk04: Sorry, I'm talking again. Yes, Tesla's interest rate is also a public information. Of course, it is easy for us to make such comparisons. Of course, from the point of view of the supply chain, China is the largest car market in the world. It is also the largest smart electric car market. Of course, we use the advantages of China's supply chain to combine our investment in research and development over the past few years. In terms of development, a very important area is to reduce the cost of manufacturing through development. In summary, from our current assessment, we do not need a very large quantity. A reasonable quantity can reach the cost level I just mentioned. You know that a factory produces 10,000 quantities in a month.
spk06: Thank you for the question. Actually, for Tesla, as they also public their gross margin details on the product, so it's easy for us to make a comparison. In terms of what advantages we can take for the Alps and its cost of structure, Actually, China is the largest automotive market. It is also the biggest market for the smart electric vehicles with already well-established supply chain. So we can already leverage the advantages of the domestic supply chains here in China. Not to mention that in the past several years, we have made investments and also achieved accumulations on the R&D activities. And R&D is one of the key drivers of improving the cost structure and reducing the bomb cost of the product. In that case, we already have a pretty good foundation. And with that, we don't need to really realize a very huge volume to realize that level of cost structure. In China, for the manufacturing facility, a reasonable volume will be around 10,000 units per month. We don't need to really go to the level of 1 million to realize that level of bomb cost.
spk08: So the cost is compared to Tesla China or Tesla Global for the 10%? Sorry, just a quick follow-up.
spk04: Okay, thank you very much.
spk08: That's quite helpful.
spk06: Yeah, to translate for that, we didn't really look at the Tesla China specifically. We are comparing with Tesla Globally.
spk08: Thank you very much. That's quite helpful. Thank you.
spk04: Thank you. Thank you, Paul.
spk00: Thank you. Your next question comes from Chang Jing from CICC. Please go ahead.
spk10: Okay. Thank you for taking that question. I have two quick questions. The first is also about the charging and also network. we can see that our network is still, our construction progress of the charging network is still the fastest in China. But at the same time, we see many other companies that still are also accelerating their construction of the, especially the fast charging network. So how do we see that we can maintain our first mover advantage? And also how do we look at the relationship between fast charging and also battery swap.
spk04: Yeah, from the charging point of view, of course, everyone is building well. We are also building. We also see some of our colleagues are building. Of course, there are also some independent companies that are building. We are also close to, for example, 1 million and 3 million. Of course, the more chargers, the more efficient it is for electric vehicles. We are definitely the most in terms of charging. Although some of our colleagues are building charging stations, the gap between us is still very large. We already have the advantage of this network effect. So now most of the companies that are already charging are also very serious about joining our network. This is the same story as what happened in the cloud field. In the end, it is the heads of these companies who freely open the network to the entire industry. So we actually saw this trend in the field of charging. So I always feel that it is almost the same as the cloud infrastructure. So the relationship between charging and charging, we have never contrasted it. Because charging has its advantages in many scenarios. For example, adding charge is always the best experience. If you add a small amount of electricity, of course, overcharging is also very good. uh uh uh uh uh For example, there is no need to get off the car. It's an all-automatic experience, especially for those who can upgrade. Now, 90% of our new users use our standard battery pack. Only 7% or 8% of our users use the long-term battery pack. Before we had so much of it, it was 50 to 50. So this can save a lot of users' China China China China China China Then there are some words that change the electricity and keep using superchargers to the life of the battery. Of course, there is no doubt that it is the best solution. This is a not very appropriate comparison. Make a more image-oriented comparison. It's like, uh, this is definitely better for the body. Uh, this is definitely not so good for the stomach. Um,
spk06: Thank you for the questions. As we are very happy to see that many other car companies, including peers as well as other third-party companies, are also dedicating their resources into installing chargers in China. As the more chargers we have publicly, the better the charging experience and the charging efficiency will be. So we are also dedicating, or actually we are also installing a lot of chargers But in addition to that, we also have many power swapping facilities. We are the core company with the most power swap stations. Some companies in the industry are also installing power swap stations, but so far we are still the single largest swap station operators. With that, we have already established a very good network effect where we can further leverage on that. So overall speaking, many other car companies who are serious about the battery swap or who are interested in battery swap now choose to join our battery swapping network and alliance because they can also rely on our network effect. But another thing is that the charging and the swapping, these two are never in conflict with each other. Of course, for the charging, there are some special benefits. For example, if you have chargers at home, you can always enjoy the best charging experience. Or if you're on the go and you only need to charge for 20% or 30% SOC, you can also choose a faster charger. But if you need to have a full charge in a very short time frame, PowerSwap is still the best option for you. Like during the Spring Festival, over 90% of our users traveling on highways choose to do the PowerSwap than doing the charging. So that's the special benefit of PowerSwap, not to mention that the battery swap station itself is a natural energy storage system. When users are doing PowerSwap, they don't need to get off the car. The entire process is fully automated. Not to mention that we also have a battery upgrade that is enabled by the swappability of the battery. 8% of them chose 100-kilowatt-hour battery pack. That is our long-range battery pack. But before we had this many power swap stations in China, 50% of our users actually chose 100-kilowatt-hour battery pack. By having more users choosing standard range battery pack, the benefit is that if you're only driving the car in Shanghai for the daily commute, you can be having a sufficient range with 75-kilowatt-hour battery But when you need to have a weekend getaway, where we need to travel for long distance during the holidays, like during the Spring Festival, you can use the flexible battery upgrade to upgrade to 100 kilowatt hour battery. For example, during the Spring Festival, many of our users have chosen to upgrade their batteries flexibly. And very soon, we will launch 150 kilowatt hour battery pack, which will fulfill a very rare need. Maybe only 1% to 2% of the use cases where users need to travel much longer. And another benefit of a power swap is regarding how it can benefit the management of the battery life. Because I can use the analogy, if you eat too fast, it can damage your stomach than eating in a very slow manner. It's a similar thing to the power swap, because if you always use supercharging, such quick charge may damage the battery life of your battery. But with battery swap, we can balance out the battery life. Not to mention that we can also use other operating approaches and the mechanism to further enhance the battery life. So overall speaking, we don't think battery swap and the charging are conflicting with each other. And these two actually come hand in hand.
spk04: Thank you, Tangjing.
spk10: Okay, thank you. My second question is regarding to the lower tier cities market. And I see that in 2023, our sales proportion in first tier cities has been increased a little bit percent. So also our sales proportion in especially third tier and below cities is still less than 20%. So compared to like BMW, which that will be exceeding 40%. So in terms of marketing and other aspects, so do we have some methods to break through further to the lower tier cities?
spk04: Yeah, this is indeed a problem that we need to focus on in 2024. In fact, we have been working on this problem uh uh We are trying to solve the problem of the downstream of efficient channels. On the other hand, we also know the importance of basic facilities for sales in the three or four-line or even more downstream markets. So this year, we will deploy a significant part of the charging of basic facilities in such downstream markets. Thank you.
spk06: Thank you for the question. It's true that in 2024 we need to solve the problem regarding enlarging our reach in the lower tier cities and also boost the sales in those cities. We have realized the significance of this and we have already started to take actions in the second half of 2023 by enlarging our reach into the lower tier cities. Right now, if you look at our sales volume distribution, basically more than 50% of our sales volume is contributed by the cells in the Yangtze River Delta areas. And if we look at all the tier one cities, more than 70% of the cells actually happen in the first tier cities. So it's very important for us to find the right approach to penetrate into the lower tier cities and enlarge our channel reach in these cities. On the other hand, we have also realized that the infrastructure, like the charging and the swapping facilities, are also playing a very important role in boosting the cells in these lower tier cities. So this year, we will also focus on installing more chargers and the swap stations in the third or fourth tier cities so that we can enhance the overall user experience and competitiveness in those areas. This is an opportunity as well as a challenge for us in 2024. We need to find the efficient approach to tap into the lower tier cities and to improve the sales volume in those areas.
spk04: Thank you.
spk11: Thank you, Beth, for all of my questions.
spk00: Thank you. Your next question comes from Tina Hao from Goldman Sachs. Please go ahead.
spk07: Thanks for taking my question. So the first question is regarding your sales network and sales team expansion plan this year. So just wondering for both the Neo brand and for the Alps brand, How many new stores do you expect to open this year, and how many new salespeople do you expect to hire for each of these brands?
spk13: Hi, Tina.
spk01: Yes.
spk13: Hi, Tina. Can you repeat your question, please?
spk07: Oh, sorry. So my first question is regarding your sales network and sales team expansion. So could you share for 2024, how many stores do you plan to open for both NIO and Alps brand? And also, how many salespeople do you expect to hire for these brands?
spk04: Yeah. From NIO's perspective, we still have 500 stores. So in fact, We are now improving the power efficiency, including replacing some low-efficiency power. So in this respect, the expansion of this power is not our primary task. Our personnel, we already have more than 5,000 people, so the personnel expansion is not our priority task. Now the important thing is to improve the efficiency of this operation. This is our primary task. Of course, we will also do some expansion, but it will not be our main action. Of course, our second brand is definitely, without a doubt, because it is a new channel, we have already locked in enough resources. We will definitely not give so much time to open up in the early stages, but we already have enough resources. So this year, in general, our goal is not less than 200 networks in this new brand. Of course, people, because relatively speaking, because it has only one car this year, so its sales efficiency will definitely be higher. We are now through the NIO system, we will prepare some sales personnel in advance. So after this ARTIS is listed, after our low-cost products are listed, we can quickly have a very mature sales system of personnel. In this regard, we will definitely have to Thank you for your questions. For NIO as the brand, actually we have already opened 500 NIO houses and NIO space in China.
spk06: For this year, our priority is not on opening up more stores or spaces for the new brand. Instead, we will focus on improving the efficiency of each point of sale, including phasing out some low efficiency locations and replace them with stores and the locations of higher efficiencies. And in terms of the sales force for the new brand, so far we have already have more than 5,000 people on the team. And enlarging the team will not be the focus either. Instead, we will focus on the efficiency of the overall operations of the team. So enlarging sales team or increasing the number of sales stores for new will not be the priority for the current year. But when it comes to our new brand, the second brand, the approach will be different. We have already secured some locations and resources for the new brand. So we will not have a very long lead time to prepare for the store opening. Basically, when we launch the brand, we also hope that we can open no less than 200 points of sales for the second brand. In terms of people, it's the same logic as we can leverage the existing training system of new to train the team, to make the entire sales team to be prepared for the launch of the very first model. So we will focus on the efficiency of such a sales team. Not to mention that for Alps, they will start with only one product, so the efficiency of the sales should be relatively easy to manage and improve. This is also another advantage of starting a brand based on existing resources and the network of Neo than starting everything from Gwanda.
spk04: Thank you, Tina.
spk07: Thank you very much, William. Can I just have a follow-up? So would the Alps store location resemble that of Neo's location?
spk04: This is still based on its own target user group to set up this sales network. And NEO is not one that will follow the same address. It will be an independent selection principle. Because its target user group, including its price, will still be different.
spk06: As Alps, our second brand is targeting at different types of user groups with different price segments and the range, which means that this brand will also have its own principle and logic for the store locations and network development. So for Alps, they will select their own stores and locations and also deploy the network according to their own demand.
spk04: 当然它的这个效率也肯定会更高一些, 因为相对来说它不会像Niel这样需要去建立Niel House这样的销售网络, 它更像类似于Tesla这样的会更加的以效率优先一些。
spk06: And of course, the sales network of the Alps will also be more efficient as Alps does not need to have the full-fledged sales stores like Newhouse. So its point of sales will be more efficiency-oriented, similar to the sales stores of Tesla.
spk07: Thank you. And my second question is, could you give us some CapEx guidance for 2024? and the breakdown between vehicle CapEx and also your charging swapping infrastructure CapEx.
spk12: Yes, sure. We will control our CapEx investment in 2024. We already canceled a delayed project with a payback period longer than two to three years. And generally, the CapEx in this year will be significantly lower than 2023. Regarding the deployment of our PowerSwap station network, we will fully leverage the resources of our business partners for the further expansion, as I mentioned to William in previous statements. That means we will notify Yeah, utilize our own resource to build the network, yeah. Thank you.
spk07: Will not utilize your own resource.
spk12: Yeah, for the PowerSwap network, station network, we minimize to use our own.
spk07: Thank you. That's very, yeah, that's very clear and helpful. Thank you.
spk12: Okay, thank you.
spk00: Thank you. As there are no further questions now, I'd like to turn the call back over to the company for closing remarks.
spk13: Thank you again for joining us today. If you have further questions, please feel free to contact Neil's investor relations team through the contact information on our website. This concludes the conference call. You may now disconnect the line. Thank you.
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